Privatization & Government Reform Newsletter #27 (September 2016 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #27 (September 2016 edition)

September 2016 edition: local privatization trends, federal privatization update, state highway conditions ranking, and more

In this issue:

LOCAL GOV: What’s New in Local Privatization

Privatization and public-private partnerships remain an active area of local government activity and innovation, according to the newly released Local Government Privatization section of Reason Foundation’s Annual Privatization Report 2016. The report reviews recent developments in privatization and public-private partnerships at the local level, including the latest on water/wastewater public-private partnerships, solid waste privatization, local government and school service privatization in Michigan, and much more.
» FULL REPORT: Local Government Privatization 2016
» Annual Privatization Report 2016 homepage

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FEDERAL GOV: Reviewing the Past Year in Federal Privatization

A newly released section of Reason Foundation’s Annual Privatization Report 2016 provides an overview of the latest on privatization and public-private partnerships in the federal government. Topics include the historical context of federal privatization, public-private competitions for Department of Defense functions, initiatives to expand private investment in major infrastructure sectors, and more.
» FULL REPORT: Federal Government Privatization 2016
» Annual Privatization Report 2016 homepage

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TRANSPORTATION: Ranking the States on Highway Conditions, Cost Effectiveness

The nation’s top-performing, most cost-effective highways can be found in South Carolina, South Dakota, Kansas, Nebraska and Maine, according to Reason Foundation’s 22nd Annual Highway Report. The study finds the worst-performing, least cost-effective highway systems are in Alaska, New Jersey, Hawaii, Rhode Island and Massachusetts. The report tracks the performance of state-owned highway systems in 11 categories—including highway spending, pavement and bridge condition, traffic congestion and fatality rates—and is based on spending and performance data that state highway agencies submitted to the federal government for 2013, the most recent year with complete data available.

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PENSIONS: Ranking of State Finances Offers Insight on Public Pension Debt

A recent Mercatus Center study ranks the 50 states by fiscal condition based on a comprehensive assessment of 14 financial metrics linked to five criteria: cash solvency, budget solvency, long-run solvency, service-level solvency and trust fund solvency. According to Reason’s Truong Bui, the Mercatus fiscal condition ranking provides a valuable benchmark to evaluate states’ fiscal health, which concerns not only conventional government debts but also often-overlooked pension and OPEB liabilities.

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HEALTH: WHO’s Opposition to Tobacco Harm Reduction Threatens Public Health

A new policy brief by Reason’s Julian Morris seeks to assess and critique the lack of transparency, openness and accountability of the World Health Organization’s Framework Convention on Tobacco Control (FCTC). The brief considers the reasons tobacco consumption has fallen in some countries, including access to information, prices and use of harm reduction products. It then contrasts these successes with the policies promoted by the FCTC, which have largely focused on “demand reduction” to the exclusion of tobacco harm reduction.

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DC Metro Looks to Privatize Parking: The Washington Metropolitan Parking Authority (Metro) is exploring the potential privatization of its parking facilities, recently issuing a request for proposals seeking a private partner for a lease agreement to manage and operate parking facilities at its 48 Metro stations that provide over 59,000 parking spots. The private firm would collect parking revenues while being responsible for operations, maintenance, capital improvements and customer service. Metro GM Paul J. Weiderfield issued a letter to employees and customers in March this year expressing desire to privatize both parking operations and paratransit services, according to the Washington Post. Bids are due on October 28, with a preferred bidder announcement anticipated by early December.

California Considers Ban on Privately Operated Immigrant Detention Facilities: The Press-Enterprise reports that Gov. Jerry Brown vetoed Senate Bill 1289, which would have barred California cities and counties from entering into agreements, with private prison companies and Immigration and Customs Enforcement, to locate privately operated prisons in their jurisdictions designed to hold immigrant detainees. The bill, which would affect three existing facilities in California, passed the Senate and Assembly in August with votes of 25–13 and 51–28, respectively.

MBTA Seeks Further Privatization: Last month, we reported that the Massachusetts Bay Transportation Authority (MBTA) was seeking to privatize police and emergency dispatch, cash accounting and warehouse operations, and MBTA continues to look to additional privatization measures to improve its services and help control costs. Earlier this month, the Boston Globe reported that MBTA seeks to privatize bus maintenance and operation in a move expected to save 30% over the existing arrangement. Boston Mayor Martin J. Walsh and organized labor immediately responded by suggesting the potential loss of jobs is unfair to workers and could lead to decreased service and higher fares.

GAO Finds Persistent Problems Managing Federal Real Property Assets: A new Government Accountability Office report finds that, notwithstanding some recent improvements in federal real property management, the federal government continues to face significant challenges managing its real property assets, particularly excess and underutilized property. Persistent problems cited include a lack of reliable data to fully assess the problem, complex processes to dispose of property, costly environmental requirements, competing stakeholder interests, and the limited accessibility of some federal properties, according to the report. The full report is available here.

DC Approves Social Impact Bond Project for Green Stormwater Infrastructure: The District of Columbia’s Water and Sewer Authority approved a 30-year, $20 million to $30 million social impact bond program designed to improve existing stormwater infrastructure, The Bond Buyer reported. The unique SIB arrangement places contractor performance in three different tiers, where reducing runoff significantly will result in an incentive payment, while underperformance would result in penalty payments by the contractor. The District hopes to update sewer systems serving two areas of the nation’s capital that contain combined sanitary and storm systems instead of having separate systems. By making the improvements, D.C. hopes to improve air and water quality, increase property values, add more park space and support jobs.

Maine Pursuing Privatization of Welfare-to-Work Program: Governor Paul LePage’s plans to privatize ASPIRE, the state’s welfare-to-work program, continue to move forward. The Portland Press-Herald reported that the State’s Department of Health and Human Services and New York-based Fedcap Rehabilitation Services are close to finalizing a contract after the state selected Fedcap in May to manage ASPIRE, which faces $29 million in federal fines over lack of performance. The union representing workers that currently manage ASPIRE fear the move could lead to job losses.

Kentucky Broadband Project Moving Forward: Earlier this month, Kentucky Gov. Matt Bevin and Congressman Hal Rogers announced that KentuckyWired, a large broadband initiative by the state, is moving forward, WKYT News reported. The initiative’s middle mile network, a PPP arrangement with the Macquarie Group, seeks to provide over 3,000 miles of fiber optic cable across the state to create an advanced broadband network connecting all of the state’s 120 counties. KentuckyWired also had agreements approved this year with Cincinnati Bell, which will expand its broadband network by 166 miles while improving its existing network, which serves 15 counties and communities, and the East Kentucky Network, which will serve 21 counties with 305 miles of fiber optic cable. Full competition is expected in early-to-mid 2019.

Wayne State University Seeks Housing PPP: Last week, the Board of Governors at Wayne State University (WSU) approved turning over management to a private company that will provide $300 million in upfront capital investments, the Detroit Free Press reported. Student enrollment is increasing rapidly, creating a housing shortage that has led to the housing of students off-campus in a local hotel. But the university also faces budget constraints that make building expansion, renovation and construction difficult. WSU chose Corvias Campus Living as its preferred bidder, which will be responsible for all asset and property management, maintenance and repairs, custodial services and capital budgeting. The university will maintain control of residence life and programming duties.

Hackensack, NJ Rejects Trash Privatization: City officials in Hackensack, New Jersey have scrapped plans to privatize garbage pickup. In addition to union concerns about employee layoffs, a city analysis found that the lowest bid received would generate savings of less than $100,000 per year, reported.

Jonesboro, GA Explores Trash Privatization: The city of Jonesboro, Georgia is facing rate increases at the Clayton County landfill and is looking to possibly privatize its trash collection services to save money, the Clayton County News-Daily reported. After requesting bids, the city received responses from Waste Management and Republic Services. A final decision is expected in the coming months.

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“This is the crux of one the most important arguments for P3s for major infrastructure. It forces policymakers to confront the true life-cycle cost of a project up front. The accepted rule of thumb for capital projects is that for every $1 of design costs, $10 will be spent for construction and $100 for maintenance over the life of the asset. But since most public discussion focuses only on the money for construction, the public is horribly misled about real long-term costs.”

—Mark Funkhouser, “D.C.’s Metro and the Power of a P3,” Governing, October 2016 edition.
“Pension actuaries estimate the cost, accumulating liabilities and required funding for pension plans based on longevity and numerous other factors that will affect benefit payments owed decades into the future. But today’s actuarial model for calculating what a pension plan owes its current and future pensioners is ignoring the long-term market risk of investments (such as stocks, junk bonds, hedge funds and private equity). Rather, it counts ‘expected’ (hoped for) returns on risky assets before they are earned and before their risk has been borne. Since market risk has a price—one that investors must pay to avoid and are paid to accept—failure to include it means official public pension liabilities and costs are understated.”

—Ed Bartholomew and Jeremy Gold, “The $6 trillion public pension hole that we’re all going to have to pay for,”, August 20, 2016.

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